5. COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

5. COMMITMENTS AND CONTINGENCIES

A) Mining claims

The Company had a lease and purchase option agreement that began in March 1998 which has since expired, covering six patented claims in the Cerbat Mountains, Hualapai Mining District and Mohave County Arizona. The Company paid $1,500 per quarter as minimum advance royalties. The Company forfeited the option to purchase the property for $250,000 plus interest at a rate of 8% compounded annually from and after the date of its exercise of the option to purchase the property. If the Lessee exercised its option to purchase, all funds paid to Lessors would be credited toward the purchase price as of the date the payments were made.

B) Mining reclamation costs

Mining and reclamation permits, and an air quality permit have been issued by the California regulatory agencies in the names of both Twin Mountain, our joint venture partner, and the Company on August 25, 2016 for a 5 year permit. The Company posted a cash bond in the amount of $1,379 (1% of the total bond amount) and Twin Mountain has posted the remainder of the $137,886 bond. If Twin Mountain defaults, we would be responsible for reclamation of the property, but reclamation costs incurred in that event would be paid in whole or part by the bond posted by us and Twin Mountain. Can-Cal & Candeo Growth Solutions are now joint owners of this Permit which has been extended to December 31, 2048.

C) Litigation

On June 3, 2014, a group of Company shareholders under the direction of Ronald D. Sloan (a former Chief Executive Officer and director of the Company) (collectively the “Plaintiffs”) filed a shareholder derivative complaint in Nevada State Court against the Company, as well as its then current directors (Thompson MacDonald, G. Michael Hogan, and Ron Schinnour), William Hogan, FutureWorth Capital Corp. and Candeo (collectively the “Defendants”). The Plaintiffs are alleging, among other things, that the Defendants caused the Company to enter into a transaction with Candeo involving the Pisgah Property that was not in the best interests of the Company. However, the transaction with Candeo is in the best interests of the Company (see above in "Note 3 – Related Party - Material Supply Agreement”).

There are many other allegations made by the Plaintiffs, all of which are considered by the Defendants to be frivolous with no basis in fact. In fact, due to the actions of the prior management of the Company, the Company would not have been able to continue operations and would have failed without the intervention of new management, including certain of the Defendants, and without entering into the transaction with Candeo. Accordingly, no provision has been recorded in the financial statements of the Company for any payment to the Plaintiffs pursuant to the claim or otherwise. Legal counsel for the Company is Justin C. Jones, Esq., currently of Jones Lovelock of Las Vegas, Nevada.

Can-Cal Resources Ltd., as one of several Defendants in Derivative Lawsuit reached “Settlement Agreement in Principle” mid-November 2017. On July 8, 2018, the court approved the Stipulation and Agreement of Settlement.

Terms of the Agreement include:

	·	A new Board was constituted as of May 13, 2019 with Mr. Casey Douglass, appointee of Defendants and Mr. Hugo Bondi, appointee of Plaintiffs, whom then unanimously voted in Mr. Gary Oosterhoff as a third Director.
	·	Advance Royalty of minimum tonnage of lava material to Candeo Lava Products within certain time frames.
	·	Proceeds from lava material payments are budgeted towards Plaintiff’s legal costs, acute Accounts Payables and Management Fees. An annual minimum was established to cover base costs of keeping Can-Cal from insolvency.
	·	As Candeo develops its marketing, it expects to substantially increase volumes of lava material sales and thus future purchases from Can-Cal. After the first 30-75,000 tons are purchased, then Can-Cal will begin to receive 20% of gross revenues, or ORI (Overriding Royalty Interest) from Candeo’s sales of lava material.
	·	Can-Cal Resources will be able to focus on developing any other resource potential.

In or about June 2017, the Securities and Exchange Commission initiated an administrative proceeding before an administrative law judge seeking to revoke Can-Cal’s registration as a publicly traded security. In November 2017, the SEC’s Division of Enforcement sought summary adjudication on the issue of permanent revocation of Cal-Cal’s securities registration. Can-Cal opposed the motion and the matter has been fully briefed; however, as of April 5, 2019, the SEC has moved to dismiss this proceeding. In January 2020, after several motions and procedural delays, the SEC administrative law judge in the matter issued a decision revoking Can-Cal’s United States securities registration.

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our Board of Directors, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

CAN CAL RESOURCES LTD 10-Q